Country Focus: Southeast Asia, a wild card in the global plastics industry

The Asian region is
buckling down on
major trends and
issues to achieve
a future “perfect”
economic growth,
which will have a
ripple effect on the
plastics industry. In
a preview to K2019,
in Düsseldorf,
Germany, from
16-23 October,
the Asian plastics
industry is
dissected into
sectors to identify
market growths
and challenges in
the region (updated
information is
provided).

With the world economies on a roller coaster ride, sluggish trade growth is
expected on the heels of further trade restrictions and policy uncertainties.

According to the OECD (Organisation for Economic Cooperation and
Development), the global economy is likely to expand from 3.3% in 2019 to 3.4% in 2020,
down from the 3.5% it had projected for both years last year.

Meanwhile, the International Monetary Fund (IMF) has cut its 2019 economic growth
forecast for China to 6.2% from 6.3%, and 6% in 2020, due to the US/Sino trade war. India’s
economy is to spiral downwards with growth at 7% in 2019, picking up to 7.2% in 2020,
says the IMF.

Bracing for further headwinds in the months to come, mature economies are pointing
their compasses towards the Southeast Asian countries, even against the Bank of
America Merrill Lynch forecast of a slowdown in five countries – Indonesia, Malaysia, the
Philippines, Singapore and Thailand – with growth falling slightly to 4.8% in 2019, from
5% in 2018. Key external factors affecting this include the global trade war and tightening
monetary policy in the US.

As a single market, Southeast Asia highlights its competence as a frontier for
automotive, packaging, construction and medical devices sectors. The region is also
embracing salient issues relating to fuel efficiency, through development of its electric
vehicle industry; plastics waste reduction through a recycling infrastructure; and adoption
of smart manufacturing via Industry 4.0 initiatives.

Southeast Asia’s plastics market is expected to register a CAGR of 5.5% from 2018-2023,
according to Mordor Intelligence. Construction and packaging industries are the major
consumers of plastics in the region, as are film/sheet applications.

Meanwhile, Mordor Intelligence also says that the engineering plastics market in Asia-
Pacific was 25.4 million tonnes in 2017, with a healthy growth rate of 5.7% expected over
the forecast period of 2018-2023. PET resins are expected to dominate the segment, with a
51% share and a growth of 6.6% over the next five years.

Flaunting its automotive base assets

To remain competitive, Southeast Asia needs to measure up with the global automotive
demand. The region produced over 4 million vehicles in 2018, and averaged a 7.6%
growth in production and sales, from January-November 2018, according to the ASEAN
Automotive Federation (AAF).

Thailand the region’s largest producer of vehicles (commercial and passenger vehicles),
takes the lead, having produced 2.16 million units in 2018, up by 9% from the previous
year. For 2018, full year vehicle sales in Thailand increased 19.2% year-on-year to 1 million
units. However, the Federation of Thai Industries (FTI) forecasts that vehicle production in
Thailand is expected to decrease slightly to 2.15 million units in 2019.

The country, dubbed as the Detroit of Asia, remains a manufacturing haven for global
automobile makers including Toyota, Ford, Honda, BMW, Mercedes and more, which
have set up factories in Thailand.

Second in rank in production is Indonesia, which produced over 1.24 million units,
up 9.9% from 1.13 million units a year ago, according to the AAF data. As well, Indonesia
remains the largest market for vehicles in 2018, having sold 1.06 million units in the 11
months to November, up 6.9% from 994,436 units over the same period a year ago.

Meanwhile car producing Malaysia, saw a drop of 8.7% from the 54,776 vehicles
recorded in March this year, according to the Malaysian Automotive Association
(MAA). But the year-to-date total industry volume sales numbers for the first four
months of 2019 stands at 193,028 units, which is 5.9% higher than the same period
(January-April) in 2018.

Plugging into electric vehicles or EVs

Sales of electric cars are increasing around the world,
surpassing 1.2 million for the first time in 2018, and more
than 1.6 million EVs expected to be sold worldwide by
the end of the year, according to the Frost & Sullivan
Global Electric Vehicle Market Outlook for 2018. While
China, the US and Europe account for around 90% of all
electric car sales in the world, Japan and South Korea are
also major players, with China cornering half of global
production in 2017, followed by Europe and the US with
21%, and 17%, respectively; and Japan and South Korea
representing 8% and 3%, respectively.

Southeast Asia, where vehicle, industrial and biomass
burning are main reasons for degrading air quality, is
also progressing towards low carbon transport.

A 2018 study by Frost & Sullivan and Nissan,
covering Singapore, Indonesia, Thailand, Malaysia,
Vietnam and the Philippines, says though EV uptake
remains comparatively low, consumers are aware of the
differences in various EV technologies such as battery
electric vehicles (BEVs), plug-in hybrid vehicles (PHEVs)
and full hybrid. It also said EVs are gaining popularity
among young individuals below the age of 40.

When British technology firm Dyson picked Singapore
as the location for its multi-billion dollar electric car project,
to roll out its first EVs by 2021, it came as a surprise since
almost 90% of vehicles are petrol-based in Singapore.
According to the Land Transport Authority (LTA), as of last
year, 357 cars were petrol-electric plug-ins while 466 were
pure electric, of the 614,937 cars registered in Singapore.
Nevertheless, the country is one of a few in the world with
both an electric car-sharing scheme and an electric taxi
fleet and it is also expected that 60 electric buses will ply
public bus routes by 2020, according to the LTA.

Elsewhere, the “Big 3” – Thailand, Malaysia, and
Indonesia, have formed respective EV roadmaps to
build an integrated EV ecosystem to support private
investments across the value chain.

Under its “Electric Vehicle Promotion Plan”, part of
the Thailand Alternative Energy Development Plan 2012-
2021, Thailand has progressed from having 60,000 hybrid
passenger cars and 8,000 battery electric motorcycles
in 2014 to 102,000 hybrid cars and 1,400 battery electric
vehicles in 2018, according to the Land Transport
Department.

Indonesia has delved deeper into the issue of
adoption, pushing its goal for 20% of all locally
manufactured cars to be electric by 2025. It is targeting
2.1 million units of two-wheeler EVs like e-motorcycles
and 2,200 units of four-wheeler vehicles by 2025.
Investments are rife and recent developments include
South Korea’s Hyundai setting up a 250,000-unit/year EV
plant in Cikarang Industrial Complex; and a consortium
of investors from South Korea, Japan and China
building a US$4 billion EV battery plant in Morowali to
tap into Indonesia’s abundant nickel laterite reserves,
a key ingredient in lithium ion batteries. The country
is also finalising a policy that offers fiscal incentives to
EV battery producers and car makers, as well as tariff
agreements with countries that have high EV demand.

Under its National Green Technology Master Plan and
the Electric Mobility Blueprint (EMB), Malaysia envisages
by 2030, it will have 100,000 electric cars on the road, along
with 2,000 electric buses and 125,000 charging stations,
says the Malaysian Investment Development Authority.

In the Philippines, the Electric Vehicle Association of
the Philippines (EVAP) set a target in 2014 to have 1 million
EVs on roads by 2020, while the Philippine Department of
Energy (DOE) collaborated with the Asian Development
Bank (ADB) to introduce e-tricycles (e-trikes) powered by
lithium-ion battery technology. As of 2018, around 1,400
e-jeepneys and e-trikes ply the roads, according to the
Department of Trade and Industry’s Board of Investments,
along with charging stations in 19 locations. EVAP
envisions 200 of these in place by 2022.

In predominantly two-wheeler Vietnam, its first
car manufacturer Vinfast expects to produce 250,000
e-motorcycles/year and is planning to release its own
electric car in the near future.

Still, the region has to tackle the slow take-up rate
of EVs due to unattractive incentives, higher prices of
EVs, compared to petrol engine equivalents, and lack
of availability of charging infrastructure, with the Frost
& Sullivan findings indicating that governments have a
critical role to play in promoting EV usage.

Top scorers in packaging

The Asian flexible packaging market is poised to reach a
CAGR of 5.7% to US$6.7 billion from 2016-2024, according
to a Transparency Market Research (TMR) sector forecast,
driven by growth and increasing disposable incomes.

Thailand, touted as the “Kitchen of the World” for
drawing importance on its food and agriculture sectors,
has one of Asia’s most advanced food processing
segment, with more than 10,000 food-and-beverage
processing factories. Its third largest sector, it accounts for
over 20% of the country’s GDP.

The Thai packaging industry is expected to grow to
63.1 trillion units in 2020 from 51.3 trillion units in 2017,
registering a CAGR of 4.2%, says Global Data research.
Packaging that offers greater functionality such as on-thego,
sustainable or personalised packs are forecast to rake
in higher demand in the longer term, as is rigid plastics
with the highest market share gainer and growth of 4.5%
during 2017-2022.

Indonesia is, likewise, predicted to lead in the flexible
packaging market in the region, with food packaging
accounting for 70% of plastic consumption, according
to TMR. Food and beverage sales are among key drivers
to Indonesia’s strong retail sales growth averaging 3.7%
year-on-year based on the December 2018 data of Bank
Indonesia. This backs the growth of the Indonesian plastics
market, forecast to witness a CAGR of 6.23% in a Mordor
Intelligence report spanning 2018-2023.

The emerging trend of busy, fast-paced lifestyles in
Indonesia’s flourishing urbanisation is driving the demand for
smaller, convenient, on-the-go packs, and other packaging
types, according to Global Data, which also alludes to rising
environment awareness among consumers as a key factor in
thriving demand for eco-friendly packaging formats.

Flexible packaging holds a broad usage in Indonesia’s
food industry, owing to its low cost, flexibility to suit
multiple shapes and sizes, convenience, and low-carbon
foot print. Flexible packaging occupied a market share of
42% in 2016, accounting for 42 billion units in 2016, and
is forecast to reach 52 billion units in 2021, at a CAGR of
4.3% during 2016-2021.

Nevertheless, rigid packaging snapped up a sizeable
market share in Indonesia in 2016, accounting for nearly
25% of the market, and is expected to grow at a CAGR of
7.7% by 2021.

With over 1,500 plastic production companies,
Malaysia’s plastics market is driven by packaging.
Citing data from Statista, Malaysia’s food and beverage
segment is predicted to earn US$268 million in 2019;
and is expected to grow annually at a CAGR of 18%
to US$520 million by 2023. In the same trajectory, the
pharmaceutical industry is propelling the growth of
packaging.

Tackling the growing plastic waste issue

As Southeast Asia moves on a trajectory path, in its
plastics sector growth, sustainability in the industry
cannot be achieved without altering the current
systems of plastics management and consumption.
Already, the five Asian countries of Indonesia,
the Philippines, Vietnam, Thailand and Malaysia
collectively produce 8.9 million tonnes/year of
mismanaged plastic waste.

Addressing the environmental impact of handling
waste build-up through plastic bag bans, and similar
tax-based actions may no longer be as efficient as
anticipated.

Today, a more expansive approach is sought to
incorporate design and enable technologies to maximise
the value of materials. Bringing into the fold is the circular
economy model that aims to curb wastage through reuse
of materials as well as recyclability of materials in major
sectors (automotive, construction, packaging and others).

Meanwhile, targets have been set in the newly formed
sustainable framework led by Malaysia-based NGO,
Circular Economy Asia (CEA), to consolidate efforts for
Asia to tackle its waste leading to a circular economy.

CEA’s model includes providing a collection service,
support of informal recycling collectors and utilising
the tiers they operate within because it is a system that
already works well; as well as licensing informal recycling
collectors for technology-connected geographical areas,
providing the information and data for a range of key
solutions.

CEA is also lauding the Asian Plastics & Packaging
Agreement (APPA), a programme that seeks to establish a
common recycling labelling system. Finally, CEA says that
if policy makers embrace the circular economy now, it is
expected to come full circle for Asia in 2050, through the
elimination of landfilling with the diversion of recyclable
resources for reprocessing and with the production of
100% of recyclable plastics.